Chicago South Side apartment portfolio lands in bankruptcy court
The sale would represent a key step in Belew’s efforts to clean up a big mess to the nonprofit, which has racked up thousands of building code violations and also defaulted on another $156 million in debt. His financial problems could lead to more bankruptcy filings.
The Better Housing Foundation, previously based in Ohio, moved aggressively into the Chicago area about four years ago, urging government officials to provide affordable housing and important services, such as job placement, to low-income residents. The charity received tax breaks on its properties and funded its buyout spree with nearly $170 million in bonds issued through the Illinois Finance Authority.
Today, the nonprofit has 75 buildings with approximately 1,000 apartments on the south side and another 900 units in suburban Chicago, including Glen Ellyn, Blue Island and Mundelein.
“They paid too much for it and they were extremely over-leveraged,” said Belew, a Florida executive who was named the nonprofit’s president in November 2018 as his problems mounted.
Many investors who bought the charity’s Chicago property-backed bonds are facing significant losses. Bonds secured by the South Side portfolio now in Chapter 11 traded this week for around 25 cents on the dollar. The properties include a 20-unit building at 7250 S. South Shore Drive and a 30-unit building at 6752 S. Michigan Ave.
At $3.9 million, Pangea’s price for the 13 buildings is 71% below the $13.6 million face value of the bonds backed by the properties. Pangea plans to spend “significantly more” than its purchase price to renovate the buildings, said Pangea CEO Peter Martay.
“Several properties need complete renovations,” he said.
Martay declined to say how much the renovations would cost, but a property inspection report recently filed with a regulator of municipal bond investors estimated that the buildings needed nearly $7 million of work. The city cited portfolio properties for sale for 1,792 code violations, according to the report. In total, Better Housing Foundation properties in Chicago garnered 6,002 violations.
“They were badly mismanaged for a while,” Martay said.
Pangea is the “stalker” bidder, or preferred buyer, in a portfolio bankruptcy auction to be held in the future. Another investor could outbid the business with a higher price and end up acquiring the properties.
“An open sales process will allow the market to set the value of the collateral and should ensure the best possible recovery for bondholders,” UMB Financial, a Kansas, City, Mo.-based bank that serves as trustee for all the Better Housing Foundation bondholders said in an email. “The proceeds from the sale of the property would be used to repay taxes, receiver and trust expenses, and the balance would go to the bondholders on a pro rata basis.”
The fate of the other Better Housing Foundation Chicago properties is less certain. The nonprofit also defaulted on $51.8 million in bonds secured by a portfolio of 45 properties and 513 units in Chicago and $19.0 million in bonds backing a portfolio of 17 buildings and 182 units, also in the city.
When asked if bankruptcy filings are likely for these portfolios, Belew said: “I have no idea at the moment. It is a work in progress. UMB only said it was “trading with BHF on a portfolio-by-portfolio basis.”
The NPO’s debt problems do not stop at the city limits. About $85 million in bonds backed by its suburban properties are also in default, according to recent UMB filings. Bonds recently traded at less than 50 cents on the dollar. Debt is plaguing properties such as Fox Run, a 220-unit apartment complex in St. Charles, and Villa Brook, a 118-unit property in Addison.